2. Consider the following IS-LM model:C = 200+ 0.25YdI = 150 +0.25Y - 1000iG = 250T = 200= 2Y - 8000iMS = 3200 and P = 2a. Solve for the equilibrium values of C and I, and verify the value you obtained for Y byadding C, I and G.M==b. Now suppose that the money supply increases to= 1,840. Solve for equilibrium Y, į,Pc, and T, and describe in words the effects of an expansionary monetary policy on theequilibrium Y, į, c, and T.c. Set M/P equal to its initial value of 1,600. Now suppose that government spendingincreases to G = 400. Solve for the new equilibrium Y, į, and C. Summarize the effectsof an expansionary fiscal policy on Y, į, and C.

Given information: C=200 + 0.25Yd I = 150 + 0.25Y - 1000i G = 250 T=200 (M/P)d = 2Y - 8000i Ms =…

Answered: Consider the following IS-LM model: C =…

Consider the following IS-LM model: C = 200+ 0.25Yd I = 150+ 0.25Y - 1000i G = 250 T = 200 Ma (1) ª MS 3200 and P = 2 = 2Y - 8000i

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

2. Consider the following IS-LM model:
C = 200+ 0.25Yd
I = 150 +0.25Y - 1000i
G = 250
T = 200
= 2Y - 8000i
MS = 3200 and P = 2
a. Solve for the equilibrium values of C and I, and verify the value you obtained for Y by
adding C, I and G.
M
==
b. Now suppose that the money supply increases to
= 1,840. Solve for equilibrium Y, į,
P
c, and T, and describe in words the effects of an expansionary monetary policy on the
equilibrium Y, į, c, and T.
c. Set M/P equal to its initial value of 1,600. Now suppose that government spending
increases to G = 400. Solve for the new equilibrium Y, į, and C. Summarize the effects
of an expansionary fiscal policy on Y, į, and C.

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